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Handbook of Methods Employment Cost Index Concepts

Employment Cost Index: Concepts

The Employment Cost Index (ECI) is a Principal Federal Economic Indicator (PFEI) that measures the change in the hourly labor cost to employers, independent of employment shifts among occupations and industry categories. Estimates are provided as index values, 3-month percent changes, and 12-month percent changes of total compensation, including wages and salaries and benefits for the civilian, private industry, and state and local government ownerships, by occupational group, industry group, geographic area, or bargaining status.

Ownership. The type of sector the establishment is controlled by—either private industry or state and local government.

Civilian workers. A combination of those employed in private industry and state and local government. Volunteers, unpaid workers, individuals receiving long-term disability compensation, and those working overseas are excluded.

Private industry. Those employed in private industry establishments. Workers in private households, the self-employed, workers who set their own pay (e.g., proprietors, owners, major stockholders, and partners in unincorporated firms), family members paid token wages, and the agricultural sector are excluded.  

State and local government. Those employed in state and local government establishments. Federal government and quasi-federal agency workers and military personnel are excluded.

Compensation component. The type of employer provided compensation, either from wages and salaries or benefits.

Total compensation. Included are employer costs for wages and salaries and for employee benefits. 

Wages and salaries. Remuneration of regular payments from employer to employee as compensation for services performed during a specific period or based on production, sales, or specific output. The following components are included in wages and salaries:

• Incentive-based pay, including commissions, production bonuses, and piece rates
• Cost-of-living allowances
• Hazard pay
• Payments of income deferred due to participation in a salary reduction plan
• Accrued longevity pay
• Deadhead pay, defined as pay given to transportation workers returning in a vehicle without freight or passengers

The following forms of payments are not included in wages and salaries:

• Uniform and tool allowances
• Free or subsidized room and board
• Payments made by third parties (for example, tips)
• On-call pay
• Retroactive pay
• Lump sum non-accrued longevity pay

The following forms of payments are considered benefits and are not included in wages and salaries:

• Shift differentials, defined as extra payment for working a schedule that varies from the norm, such as night or weekend work
• Premium pay for overtime, holidays, and weekends
• Nonproduction bonuses or those not directly tied to production (such as end-of-year and profit-sharing bonuses)

Benefits (cost). The cost to employers for providing a benefit. ECI captures the employer cost of benefits in five major categories:

• Paid leave—vacation, holiday, sick, and personal leave
• Supplemental pay—overtime and premium, shift differentials, and nonproduction bonuses
• Insurance—life, health, and short-term and long-term disability
• Retirement and savings—defined benefit and defined contribution
• Legally required benefits—Social Security, Medicare, federal and state unemployment insurance, and workers' compensation

Healthcare benefits. Plans provide preventive and protective medical, dental, vision, or prescription drug coverage to the employee and the employee’s dependents, including the spouse and children.

Subcategory. Category identifying the attributes of workers or establishments for the estimate.

Industry group. Establishments are classified into industries using the North American Industry Classification System (NAICS).

Occupational group. Workers are classified into occupations using the Standard Occupational Classification system (SOC).

Bargaining status. Workers are classified as union workers when these conditions are met: 1) a labor organization is recognized as the bargaining agent for all workers in the occupation, 2) wage and salary rates are determined through collective bargaining or negotiations, and 3) settlement terms on earning provisions are embodied in a signed, mutually binding collective bargaining agreement. Workers that do not meet these conditions are classified as nonunion workers.

Incentive-based pay. Wages and salaries that are at least partially based on productivity payments, such as production bonuses, commissions, piece-rates, or other types of incentives based on production, sales, or output. Nonproduction bonuses or those not tied to production or output are considered as part of benefits.

Time-based pay. Wages and salaries that are solely based on a unit of time, such as an hourly rate or an annual salary. Straight-time (time-based) wages rates are commonly referred to as base rates or base wages.

Area. The physical boundaries that an establishment must be located within (e.g., state, county, parish, township, or city) to be included in the survey.

National. Includes the continental United States (including Alaska) and Hawaii; excludes U.S. territories such as Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the Virgin Islands.

Census division. Grouping of the United States into nine geographical areas: 

• New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont)
• Middle Atlantic (New Jersey, New York, and Pennsylvania)
• South Atlantic (Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, and West Virginia)
• East South Central (Alabama, Kentucky, Mississippi, and Tennessee)
• West South Central (Arkansas, Louisiana, Oklahoma, and Texas)
• East North Central (Illinois, Indiana, Michigan, Ohio, and Wisconsin)
• West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota)
• Mountain (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming)
• Pacific (Alaska, California, Hawaii, Oregon, and Washington)

Census region. Grouping of census divisions into four major geographical areas: 

• Northeast (New England and Middle Atlantic)
• South (South Atlantic, East South Central, and West South Central)
• Midwest (East North Central and West North Central)
• West (Mountain and Pacific)

Metropolitan Statistical Area (MSA) or Combined Statistical Area (CSA). Large population centers with adjacent communities that have a high degree of economic and social integration. These communities are defined by the Office of Management and Budget (OMB). ECI data is available for the 15 largest MSAs and CSAs. For the metropolitan areas currently being published, as well as a history of changes to the 15 published areas, see the area classification factsheet.  

Periodicity. The measurement type of the estimate.

Index. Shows the change in compensation costs over time relative to a base period that is set to 100.0.

3-month percent change. Represents the employment cost percent changes in the index over a 3-month period, i.e., March 2024 to June 2024.

12-month percent change. Represents the employment cost percent changes in the index over a 12-month period, i.e., March 2023 to March 2024.

Current dollar. Estimates describe change in the labor costs at the present or nominal value, unadjusted by changes in consumer prices.

Constant dollar. Estimates describe real compensation cost changes, adjusted by changes in consumer prices.

Laspeyres index. An index reflecting the change in a fixed basket of goods and services over time. The ECI is calculated using a modified Laspeyres methodology for which the basic computational framework is the standard formula for an index number with fixed index weights, modified by special statistical conditions and accounting for sampling methodology.

Base period. All current ECI index estimates have a base period of December 2005 = 100.0.

Cost per hour worked. The total employer cost of wages and salaries or benefits divided by total hours worked (includes all hours worked only or annual work schedule hours plus overtime minus leave hours). Compensation costs for salaried employees are converted to an hourly basis for inclusion in the index.

Seasonally adjusted. Estimates where the effects of events that follow a more or less predictable seasonal pattern each year are removed.

Sample. All the units/establishments or jobs/occupations selected for the survey.

Establishment. A single economic unit that engages in one, or predominantly one, type of economic activity. For private industry, the establishment is usually at a single physical location, such as a mine, factory, office, or store. If a sampled establishment is owned by a larger entity with many locations, only the employment and characteristics of the establishment selected for the sample are considered for the survey. For state and local governments, an establishment can include more than one physical location, such as a school district or a police department. Each establishment is assigned a six-digit code from the NAICS.

Initiation. The process of collecting data from a new sample unit.

National Compensation Survey (NCS). The National Compensation Survey (NCS) is an establishment-based survey that provides comprehensive measures of employer costs for employee compensation, including wages and salaries, and benefits; and the incidence and provisions of employer-sponsored benefits among workers.

Reference period. Costs represent the pay period that includes the 12th of March, June, September, and December.

Update. The process of collecting current information from an initiated sample unit.

Work schedule. The number of daily hours, weekly hours, and annual weeks that employees in an occupation are scheduled and do work. The work schedule is the standard schedule for the selected job where short-term fluctuations and one-time events are not considered unless the change becomes permanent. Work schedules are either fixed, flexible, rotating, or nonfixed. Data are collected on usual work schedule. For more information on work schedules, see the “Work Schedules in the National Compensation Survey” article.

Response rate. The percentage of the sample that responds to or participates in a survey.

Usable rate, initiations. The number of establishments being initiated for a specified quarter of collection out of the total number of establishments available for initiation.

Usable rate, updates. The number of establishments being updated for a specified quarter of collection out of the total number of establishments available for update.

Survey response rate. The number of responses being used in estimation for a specified quarter out of the total number of possible responses.